Back
22 Oct 2015
ECB to cut the deposit rate and to extend QE – Danske
FXStreet (Córdoba) - Analysts from Danske Bank expect the European Central Bank to cut the deposit rate by 10 basis points at the December meeting and also an extension of the purchase program beyond September 2016.
Key Quotes:
“Draghi had a very dovish tone today and surprisingly opened the door for a deposit rate cut. Based on this, we now expect the ECB to cut the deposit rate by 10bp at the meeting in December, to keep the door open further rate cuts and at the same time announce an extension of the QE purchases beyond September 2016.”
“Another argument for the ECB cutting the deposit rate is that Draghi’s main focus today was on 1) the appreciation of the euro and 2) higher real rates and hence inflation expectations. In our view, an extension of the QE purchases is already consensus and thus it will have limited impact on both the exchange rate and on inflation expectations. On the other hand, cutting the deposit rate further would have a stronger market impact which also follows as we expect Draghi to signal, that the ECB has not necessarily reached the lower bound on interest rate, but it depends on incoming information.”
“Given that we now project a 10bp deposit rate cut in December, we revise down our 1M and 3M EUR/USD forecast from 1.12 to 1.10 and 1.08 respectively, as a further deposit rate cut – on the margin - is more EUR negative compared to our previous call of an extension of the QE programme.”
Key Quotes:
“Draghi had a very dovish tone today and surprisingly opened the door for a deposit rate cut. Based on this, we now expect the ECB to cut the deposit rate by 10bp at the meeting in December, to keep the door open further rate cuts and at the same time announce an extension of the QE purchases beyond September 2016.”
“Another argument for the ECB cutting the deposit rate is that Draghi’s main focus today was on 1) the appreciation of the euro and 2) higher real rates and hence inflation expectations. In our view, an extension of the QE purchases is already consensus and thus it will have limited impact on both the exchange rate and on inflation expectations. On the other hand, cutting the deposit rate further would have a stronger market impact which also follows as we expect Draghi to signal, that the ECB has not necessarily reached the lower bound on interest rate, but it depends on incoming information.”
“Given that we now project a 10bp deposit rate cut in December, we revise down our 1M and 3M EUR/USD forecast from 1.12 to 1.10 and 1.08 respectively, as a further deposit rate cut – on the margin - is more EUR negative compared to our previous call of an extension of the QE programme.”